Copa Holdings, S.A. (CPA) Q4 2022 Earnings Call Transcript

Copa Holdings, S.A. (NYSE:CPA) Q4 2022 Earnings Conference Call February 16, 2023 11:00 AM ET

Company Participants

Daniel Tapia - IR

Pedro Heilbron - CEO

Jose Montero - CFO

Conference Call Participants

Michael Linenberg - Deutsche Bank

Duane Pfennigwerth - Evercore ISI

Rogério Araújo - Bank of America

Savi Syth - Raymond James

Bruno Amorim - Goldman Sachs

Stephen Trent - Citigroup Inc.

Helane Becker - Cowen and Company

Joshua Milberg - Morgan Stanley

Operator

Ladies and gentlemen, convey you for opinionated by. Welcome to Copa Holdings Fourth Quarter Earnings Call. [Operator Instructions] As a reminder, this telephone is being webcast and recorded connected February 16, 2023.

Now I will move nan convention complete to Daniel Tapia, Director of Investor Relations. Sir, you whitethorn begin.

Daniel Tapia

Thank you, Latif, and welcome, everyone, to our 4th fourth net call. Joining america coming are Pedro Heilbron, CEO of Copa Holdings; and Jose Montero, our CFO. First, Pedro will commencement by going complete our 4th fourth and afloat twelvemonth highlights, followed by Jose, who will talk our financial results. Immediately after, we will unfastened nan telephone for questions from analysts.

Copa Holdings financial reports person been prepared successful accordance pinch International Financial Reporting Standards. In today's call, we will talk non-IFRS financial measures. A reconciliation of nan non-IFRS to IFRS financial measures tin beryllium recovered successful our net release, which has been posted connected nan company's website, cpaair.com. Our chat coming will besides incorporate forward-looking statements, not constricted to humanities facts that bespeak nan company's existent beliefs, expectations and/or intentions regarding early events and results. These forward-looking statements impact risks and uncertainties that could origin existent results to disagree materially and are based connected assumptions taxable to change. Many of these are discussed successful our yearly study revenge pinch nan SEC.

Now I'd for illustration to move nan telephone complete to our CEO, Mr. Pedro Heilbron.

Pedro Heilbron

Thank you, Daniel. Good greeting to all, and acknowledgment for participating successful our 4th fourth net call. Before we begin, I would for illustration to widen my sincere gratitude to each our coworkers for their committedness to nan company. Their continuous efforts and dedication person kept Copa astatine nan forefront of Latin American aviation. To them, arsenic always, my highest regards and admiration. We're proud to study coagulated 4th fourth and afloat twelvemonth results contempt nan unit higher nett substance prices person added to our operating costs and different headwinds travel connected to our business.

Among nan main highlights for nan quarter. In position of capacity, though we had a akin number of regular departures compared to 2019, we achieved 6% much ASMs than successful Q4 2019 owed to a higher mean stage.

Revenue rider miles accrued by 7.5%, which led to an 86.6% load factor, a 1.4 percent constituent summation erstwhile compared to nan aforesaid play successful 2019. Passenger yields came successful astatine $0.151 aliases 20% higher than successful nan 4th fourth of 2019. While cargo revenue, including nan publication from nan cognition of our Boeing 737-800 freighter was 69% higher, resulting successful portion revenues, aliases RASM, of $0.137, a 23% summation compared to nan 4th fourth of 2019. Adjusted substance CASM decreased by 7% compared to Q4 2019 from $0.066 to $0.061. And our operating separator came successful astatine 24.7%.

Now turning to our main highlights for nan afloat twelvemonth 2022. Unit revenues accrued 12.6% year-over-year to $0.121 chiefly driven by a 10.8% summation successful yields. CASM ex substance came successful astatine $0.598, almost 5% little than 2019. And nan operating separator for nan twelvemonth came successful astatine 15.2%. During nan year, we started nan formation to Barcelona, Venezuela, Santa Marta, Colombia and to nan Felipe Angeles Airport successful Mexico City, ending nan twelvemonth operating to 77 destinations successful 32 countries successful North, Central, South America and nan Caribbean, strengthening our position arsenic nan astir complete and convenient hub successful Latin America.

We inaugurated our caller Copa nine successful to Tocumen caller Terminal 2. This caller and modern installation provides our business people and preferred members pinch a world-class experience, while putting done our Panama hub of nan Americas. We besides reactivated our Panama stopover program, which promotes our location state arsenic a tourer destination, and we're seeing bully results.

In September, we launched our caller distribution strategy, including nan caller Copa Connect action for recreation agency to entree coaters and different contented via nan IATA caller distribution capacity aliases NDC. At nan aforesaid time, Copa introduced a costs betterment surcharge for bookings made done nan bequest GDS technology, known arsenic EDIFACT.

During Q4, we were pleased pinch some nan take of Copa Connect among our agency partners and nan summation successful nonstop income via copa.com. We're still astatine an early stage, but these changes are helping america summation much power complete our distribution strategy. And offset and yet little our distribution costs.

On nan operational front, Copa delivered an on-time capacity of 87.4% and was precocious recognized by nan charismatic hose guideline arsenic nan astir on-time hose successful Latin America successful 2022. In fact, according to OAG, Copa's on-time capacity was again nan highest of immoderate bearer successful nan Americas.

Additionally, past year, Copa Holdings was recognized by Skytrax for nan seventh consecutive twelvemonth arsenic nan champion hose and nan champion hose unit successful Central America and nan Caribbean. I would for illustration to erstwhile again definitive my nickname to our much than 7,000 coworkers who time successful and time retired present a world-class recreation acquisition for our customers. Their contributions are cardinal to our success.

With regards to Wingo. Wingo received 1 further 737-800 from Copa fleet and ended nan twelvemonth pinch a full of 9 aircraft. Additionally, we proceed this location description and ended 2022 operating 31 routes will work to 20 cities successful 10 countries.

Turning now to our expectations for 2023. During our past telephone successful November, we shared preliminary capacity guidance for nan twelvemonth of positive 15% arsenic compared to 2022. We mentioned that we were expecting to person 13 Boeing 737 MAX craft during nan year. As you spot successful our net release, we are reducing our capacity maturation guidance to a scope of 12% to 14% arsenic it now looks for illustration Boeing won't beryllium capable to support really scheduled transportation dates. We now expect to person 12 craft during nan twelvemonth alternatively of 13.

Additionally, arsenic is nan lawsuit for nan manufacture worldwide, we're experiencing higher attraction costs related to our engines and [indiscernible] turnaround time. We expect that this rumor will adhd unit connected our portion costs for nan year. Jose will supply much specifications astir this.

This year, we expect to proceed increasing our apical successful position of frequencies and caller destinations. So far, we person announced caller work to nan cities of Manta successful Ecuador and Baltimor and Austin successful U.S. arsenic portion of this work. With these additions, we will beryllium serving 80 destinations successful North, Central, South America and nan Caribbean by July of this year.

To summarize, we delivered beardown results successful Q4 and for nan afloat twelvemonth 2022. Our squad continues to present world-leading operational results, including, again, nan champion on-time capacity successful nan Americas. We're reducing our capacity assumptions for nan twelvemonth fixed nan existent delays successful nan craft transportation stream. And arsenic always, we will proceed looking for efficiencies and savings to further trim our portion costs and fortify our competitiveness going forward.

Lastly, we're assured arsenic ever successful our business model. In 2022, we delivered competitory portion costs and coagulated margins while continuing to connection a awesome merchandise to our passengers, making america nan champion positioned hose successful our region to consistently present industry-leading results.

Now I'll move it complete to Jose, who will spell complete our financial results successful much detail.

Jose Montero

Thank you, Pedro. Good morning, everyone. Thanks for being pinch america today. I'd for illustration to subordinate Pedro successful acknowledging our awesome squad for each their efforts to present a world-class work to our passengers. I will commencement by going complete nan main highlights for afloat twelvemonth 2022. Our load facet came successful fundamentally level versus 2019 astatine 85.1%, driven by a 10.8% summation successful yields, portion revenues improved by 12.6% versus 2019 to $0.121. Our portion costs came successful astatine $0.598, 4.6% little than successful 2019.

Due to an summation of 67% successful pitchy substance prices, our operating separator was 0.9 percent points little than successful 2019 astatine 15.2%. Reported nett income for afloat twelvemonth 2022 came successful astatine $348.1 million, which translates to net per stock of $8.58. Excluding typical items, chiefly successful unrealized mark-to-market nett summation of $12.7 cardinal related to nan company's convertible notes arsenic good arsenic changes successful nan worth of financial investments, adjusted nett income came successful astatine $335.4 cardinal aliases adjusted net per stock of $8.26.

Now turning to our 4th fourth results. Net profits for nan 4th came successful astatine $88.3 cardinal aliases $2.23 per share. Excluding typical items, nett profits came successful astatine $177.7 cardinal aliases $4.49 per share. Fourth 4th typical items are comprised of an unrealized mark-to-market nonaccomplishment of $91.3 cardinal related to nan company's convertible notes and a $1.9 cardinal unrealized marketplace summation related to changes successful nan worth of financial investments. We reported a quarterly operating profit of $219.7 cardinal and an operating separator of 24.7%. Capacity came successful astatine $6.5 cardinal disposable spot miles aliases astir 6% higher than successful Q4 2019.

Load facet came successful astatine 86.6% for nan quarter, a 1.4 percent constituent summation compared to nan aforesaid play successful 2019, while rider yields accrued 20.4% to $0.151.

As a result, portion revenues came successful astatine $0.137 aliases 23.4% higher than successful nan 4th fourth of 2019. Driven by higher pitchy substance prices, portion costs aliases CASM accrued $0.103 aliases 10% much than nan adjusted CASM successful Q4 2019. And finally, our CASM excluding substance came successful astatine $0.061, a 7% alteration versus nan adjusted CASM excluding substance for Q4 2019.

I'm going to walk immoderate clip now discussing our equilibrium expanse and liquidity. As of nan extremity of nan year, we had assets of adjacent to $4.7 billion. And successful position of cash, short- and semipermanent investments, we ended nan twelvemonth pinch $1.1 billion, which represents 38% of past 12 months revenues. As to our debt, we ended nan twelvemonth pinch $1.7 cardinal successful indebtedness and lease liabilities and achieved an adjusted nett debt-to-EBITDA ratio of 0.8x.

Turning now to our fleet. During nan 4th quarter, we received 2 Boeing 737 MAX 9s to extremity nan twelvemonth pinch a full of 97 craft compared to 102 craft successful our fleet astatine year-end 2019. In January of 2023, we received an further 737 MAX 9 to bring our full fleet to 98 aircraft. With this addition, our full fleet is now comprised of 68 737-800s, 21 737 MAX 9s and 9 737-700s. These figures see 1 737-800 freighter and nan 9 737-800s operated by Wingo.

2/3 specified of our fleet proceed to beryllium comprised of owned craft and 1/3 of our craft are nether operating leases. During nan remainder of 2023, we expect to person 11 further aircraft, each Boeing 737 MAX 9s. We person been informed by Boeing of further transportation delays successful our 2023 transportation stream. So we now expect each 11 craft pending to beryllium delivered during nan twelvemonth to person betwixt 2 to 4 months of delays versus nan original transportation date.

As to our outlook, based connected nan existent request situation and nan expected transportation dates for our incoming aircraft, we tin supply nan pursuing guidance for afloat twelvemonth 2023. We expect to summation our capacity successful ASMs versus 2022 wrong nan scope of 12% to 14%, and we expect an operating separator wrong nan scope of 17% to 19%.

We're basing our outlook connected nan pursuing assumptions: load facet of astir 85%; portion revenues wrong nan scope of $0.121, CASM ex substance to beryllium successful nan scope of $0.06, chiefly owed to nan further costs associated pinch our engines and nan longer attraction shop and turnaround times that we expect for this year; and finally, we are expecting an all-in substance value of $3.15 per gallon.

Thank you. And pinch that, we'll unfastened nan telephone to immoderate questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility comes from nan statement of Michael Linenberg of Deutsche Bank.

Michael Linenberg

Congrats connected nan awesome results, team. Two questions here. I guess, first -- 2 questions here. Just nan first, Pedro, tin you really update america connected immoderate of nan shareholder initiatives, nan stock repurchase and wherever things guidelines pinch respect to dividend reinstatement? .

Pedro Heilbron

Yes. Okay. So I'll reply nan 2nd part, and past I'll fto Jose reside nan repurchase part. So nan committee met past week and decided to talk nan dividend repayment determination astatine an upcoming committee gathering towards nan 2nd half of March, truthful this coming period wherever we're going to coming our budget, our CapEx need, our rate flow, et cetera. So they decided to make nan determination then. So that will beryllium successful for illustration a period aliases -- yes, for illustration a period aliases so. .

Jose Montero

Yes. Mike, successful position of nan stock repurchase program, we were progressive past twelvemonth successful nan program. We person a presently approved $200 cardinal programme that is fundamentally halfway completed. And of course, nan nonsubjective of nan programme is to maximize shareholder value. And nan different constituent of nan strategy down nan programme is to person liability guidance vis-a-vis nan person arsenic well. So that's benignant of nan strategy that we person pinch nan stock repurchase program.

Michael Linenberg

Okay. Great. And past conscionable my second, erstwhile we look astatine nan 12% to 14% capacity growth, you've already announced 3 caller cities, right, Baltimore, Austin and Manta. Should we expect much cities? And arsenic we deliberation astir nan 12% to 14%, is it mostly connecting nan dots -- really not moreover connecting, is it mostly adding wave aliases extent to nan schedule? Is it 50-50 caller cities? I'm conscionable funny astir nan type of maturation and debased versus precocious consequence type growth?

Pedro Heilbron

Correct. So my reply successful a measurement is each of nan above. But 50% of nan capacity maturation successful 2023 comes from nan afloat twelvemonth effect of nan additions successful 2022, some frequencies and caller destinations added successful 2020. Then nan different 50% is mostly further frequencies successful existent markets. And past a smaller portion of that 50% is going to beryllium caller destinations. We person announced 3 caller entries, and we are hoping to denote an further astatine slightest two, 2 aliases truthful for nan extremity of nan year.

Michael Linenberg

Pedro, nan 2 aliases truthful that you're looking to announce, are they immoderate of nan destinations that you served anterior to COVID that you person yet to restart? Or are they wholly caller destinations?

Pedro Heilbron Copa Holdings, S.A. – CEO & Director

No, I meant to opportunity caller destinations. We still person astir 8 destinations we haven't restarted from pre-COVID, and we dream to besides reinstate immoderate of those during nan year.

Operator

Our adjacent mobility comes from nan statement of Duane Pfennigwerth of Evercore ISI.

Duane Pfennigwerth

Just connected nan accepted shape of margins 4Q to 1Q, typically, we really spot immoderate pickup sequentially from 4Q to 1Q. And if you deliberation astir nan benignant of astir 25% margin, that you posted here. How do you deliberation astir that into 1Q? And I conjecture what we're trying to get a consciousness for is really overmuch conservatism you've baked into nan 2nd half of nan twelvemonth because it conscionable feels for illustration a lot.

Pedro Heilbron

Right. So Duane, and of course, it's only February. So we're going to beryllium cautious successful really we effort to forecast 9, what, 11 months we person up of us. But I should besides opportunity that was not needfully a emblematic Q4, but I'll fto Jose possibly get into much detail.

Jose Montero

Yes. Duane, Q4 was peculiarly beardown for a mates of reasons. One, location was a beardown request situation successful nan region. Number two, astir of nan income that were performed for Q4 were made during a play wherever substance was still high, and past substance came down during nan 4th arsenic good versus wherever it was successful Q3. So that created a very, very beardown consequence for nan quarter. Your item, I deliberation that was benignant of getting into this. We decided to spell backmost to our yearly guidance. So we're providing a afloat twelvemonth guidance. For Q1, I would opportunity from a apical statement benignant of RASM perspective, you could reason that successful Q1, location is simply a possibly a flimsy reduction. The guidance assumes a flimsy simplification successful nan RASM versus nan Q4 RASM that was very, very strong. But that's conscionable a usability of -- there's a small spot much capacity successful nan network. And nan different point location is -- substance is simply a small spot little arsenic well. So there's immoderate of that move going connected there, but we expect Q1 to person a bully improvement successful position of its profitability from what we're seeing successful truthful far.

Duane Pfennigwerth

Okay. I mean substance is little sequentially. Obviously, substance has been each complete nan place, but it is little sequentially, astatine slightest our position coming 4Q-to-1Q. And past possibly conscionable for nan follow-up connected nan aviator statement announcement, tin you speak to nan magnitude of that, I presume that's successful your afloat twelvemonth costs guidance? How should we deliberation astir that?

Pedro Heilbron

Right, Duane. So this is simply a process we spell done each 4 years pinch each of our unions, including our aviator unions. You usually don't moreover find retired because location isn't a batch of sound retired location astir it. It's usually a very professional, and I don't cognize -- I don't want to opportunity friendly, but master and respectful negotiation. It wasn't immoderate different this year. Only that it sewage retired successful nan news. So a small spot much sound was made retired of this. The statement was signed past week arsenic always, usually gets signed connected nan past and nan owed dates. And it was not overmuch different to what we person signed successful erstwhile negotiations 4 years agone aliases 8 years ago, not very different. And it should not person an effect that we cannot screen pinch different efficiencies and maturation and things for illustration that.

Jose Montero

Yes. It is -- conscionable to beryllium clear, it is included successful our guideline for 2023 successful position of ex-fuel CASM. And again, it's successful statement pinch what we person signed successful nan past pinch that group. And it was signing -- I deliberation nan conclusion to nan negotiations we've done successful a very bully spirit.

Pedro Heilbron

And it's successful statement pinch ostentation successful Panama also. Inflation successful Panama is nan 2% to 3% range. So it's besides successful statement pinch that -- and I get very akin to what we person signed successful nan past. It's successful nan guidance, of course.

Operator

Our adjacent mobility comes from nan statement of Rogério Araújo of Bank of America.

Rogério Araújo

I had 1 follow-up connected possibly supply/demand. So location is simply a remainder implied successful nan guidance that is astir 12% of '93 level and 4th Q was 20%, 21% supra '93 levels. So I would for illustration you guys to remark what is driving that. So you already mentioned that immoderate of nan 4th Q tickets has been sold erstwhile lipid value was astatine a higher level. But tin you break down possibly 3 segments here. One is nan higher frequencies from Copa, really it should effect expected yields. The higher -- nan expected capacity description from competitors, and besides demand, do you expect immoderate request weakening? Is location -- I don't know, possibly I deliberation that nan request situation presently that is expected to beryllium normalized? So really are you reasoning astir Copa’s supply, competitor proviso and demand?

Jose Montero

Thank you, Rogério, for nan question. I will commencement by saying that this is early successful nan year, truthful nan visibility towards nan second portion of nan twelvemonth is still limited. But from what we're seeing, astatine slightest successful Q1, request situation continues being comparatively beardown versus what we saw successful Q4. I deliberation that for some connected nan portion gross broadside and successful nan load facet side, looks comparatively strong, possibly a tad down versus, again, Q4, but successful wide terms, still very beardown system-wide and each regions look to person that benignant of aforesaid behavior.

From -- successful position of what we're seeing erstwhile you compare, let's say, nan portion revenues for nan 2nd half of 2022 and nan afloat twelvemonth 2023 guidance that we've issued. I would opportunity that nan mostly of nan constituent successful position of nan alteration successful RASM is related to nan substance curve presumption that we person aliases nan substance curve that we person based our portion revenues in, I would opportunity astir 2/3 of nan activity is related to that. And past nan different portion is related to nan capacity that we brought in. And we are expanding capacity for nan afloat twelvemonth by nan scope of 12% to 14%. So it is an important double-digit activity successful capacity. So I would opportunity those are nan 2 movements, but it's -- again, substance and capacity connected our ain capacity is what's driving nan guidance for '23.

Operator

Our adjacent mobility comes from nan statement of Savi Syth of Raymond James.

Savi Syth

If I might, connected nan capacity front, could you talk a small spot astir -- conscionable from a MAX transportation standpoint, really you expect that to benignant of travel passim nan twelvemonth and benignant of nan capacity cadence there, which related to that is besides benignant of nan substance efficiency, do you expect that to amended arsenic we spell done nan year? Or is it conscionable based connected benignant of nan routes that you're adding, do we -- whitethorn beryllium shorter haul routes aliases thing astir that, that whitethorn beryllium causes substance ratio to possibly not amended contempt nan MAX delivery?

Jose Montero

Yes. I would say, Savi, that nan cadence passim nan year, I would opportunity that astir of nan maturation will astir apt hap during nan 2nd half. So it will beryllium much thing backloaded into nan 2nd half of nan year. We're seeing for Q1, again, a maturation connected a sequential ground and debased azygous digits versus Q4. And retrieve that successful -- but besides there's nan effect of -- I mean, again, we're comparing against 22 successful total. So location is besides nan effect of micron astatine nan opening of nan twelvemonth a small bit. So there's immoderate sound successful nan guidelines of 22 to 23. So it's mostly backloaded into nan 2nd half of nan year. And yes, nan benefits successful position of substance depletion for nan MAX is there. It's successful nan double-digit scope versus debased double-digit scope versus nan NG. So we're seeing that, and I deliberation that's an presumption to make successful nan substance depletion portion of nan the model.

Pedro Heilbron

Which is, of course, successful our guidance.

Jose Montero

Yes, of course.

Savi Syth

Got it. And if I might, connected nan Wingo, accrued 1 much aircraft. I don't cognize if that was benignant of expected aliases not. Could you conscionable talk astir what's -- really you're reasoning astir Wingo and really that's evolving based connected what you're seeing successful nan situation today?

Pedro Heilbron

Sure. So Wingo did spell from 8 craft astatine nan opening of 2022 to 9 is thing we had planned for. However, nan Colombia marketplace is very competitory correct now. I would opportunity it has overcapacity. So we deliberation that Wingo for 2023 is going to stay astatine 9 aircraft. So we don't spot Wingo increasing overmuch this twelvemonth isolated from for amended utilization of its fleet. And they'll do a fewer things, they'll adhd immoderate markets, they'll displacement capacity around, but they will stay pinch 9 craft during nan year.

Operator

Our adjacent mobility comes from nan statement of Bruno Amorim of Goldman Sachs.

Bruno Amorim

So nan mobility is really a follow-up connected nan outlook for '23. Just wanted to make judge that we sewage nan correct message. Is it adjacent to opportunity that you are taking advantage of nan truth that margins are moving supra inclination to stimulate immoderate request and bring margins backmost to -- what were nan humanities levels? Because I understand 4th fourth was peculiarly strong, but moreover if you look astatine 3rd quarter, separator was 18% already overmuch higher substance prices, right? So it does look that each other held constant, location was room for margins to beryllium amended successful 2023?

Pedro Heilbron

Yes. So we -- I'll commencement and past fto Jose decorativeness nan question. But successful Q3, we were capable to screen our substance disbursal pinch higher yields. And of course, erstwhile substance is up, astir -- each hose is affected successful nan aforesaid way, and it's a batch easier to get adjacent actions matched by everyone, which is what happened successful nan 2nd half of nan year. In Q4, we had a very beardown period of October, wherever load facet was astir 90%. That's measurement supra our precocious mean -- it's moreover supra our precocious average. And past substance started coming down successful nan second portion of nan quarter, while yields stay higher than before. So we don't deliberation that's sustainable, and we're seeing that -- and it's acquisition from nan past besides erstwhile substance comes down, airlines are a small spot much fierce successful their pricing and -- we've seen a batch of that aliases immoderate of that, I should say. So nan anticipation is for Q1 that request will beryllium somewhat little but still very healthy, but we won't person successful October. So nan remainder will beryllium very similar. And output will beryllium besides somewhat little owed to nan substance reduction. I don't know, if you want to adhd thing to that Jose?

Jose Montero

The constituent is that we're besides increasing by betwixt 12% and 14%, which is simply a important level of growth. And I deliberation that, that's besides a driver of our strategy for nan twelvemonth is conscionable simply to proceed benignant of rebuilding nan hub to wherever it was pre-pandemic. And I deliberation that nan separator guidance that we're providing is astatine nan precocious extremity of what we person delivered connected a yearly basis, complete nan past respective years. So it is -- I deliberation pinch nan added maturation is precisely arsenic you mentioned, a information of nan strategy that we're pursuing successful position of capturing caller marketplace aliases recapturing our markets. .

Operator

Our adjacent mobility comes from nan statement of Stephen Trent of Citi.

Stephen Trent

I conscionable had 1 aliases 2 speedy follow-ups connected nan competitory environment. So it seems, for example, for illustration Spirit Airlines has exited Florida, Panama that whitethorn person had immoderate problem competing there. And past successful Colombia, I cognize you besides conscionable mentioned it, but it looks for illustration Viva Colombia is possibly looking a small wobbly from a competitory perspective. When you deliberation astir benignant of broader capacity successful nan region? Do you spot benignant of medium- to longer-term upside for rider capillarities done document?

Pedro Heilbron

Yes. Actually, nan 2 examples you person alluded to are not really that -- don't person a important effect successful our network. We don't compete overmuch against either one, and we person very small overlap. So those exiting definite markets don't really person an impact. And what we person seen is simply a tilt towards much ULCC title successful our web versus what would person been 8 years agone aliases moreover 4 years ago. So that's, I think, nan large change, which is benignant of -- it has 2 sides. One broadside is, of course, we request to stay very focused connected our costs and our efficiencies, et cetera; but secondly, we are for illustration successful astir markets, nan only full-service carrier, truthful that gives america definite uniqueness.

But successful wide terms, arsenic I mentioned, title correct now successful our network, it's mostly ULCC. And I would opportunity that astir airlines person brought backmost astir of nan capacity to pre-pandemic levels aliases very adjacent to it.

Stephen Trent

Very helpful, Pedro. And arsenic my follow-up, conscionable really quickly, I cognize you guys did very adjuvant guidance connected nan afloat year. I was wondering if you mightiness person a higher level of position arsenic to really we mightiness deliberation astir benignant of 1Q -- pitchy substance carriers, benignant of comparatively wherever you could spot it settling in.

Jose Montero

Yes, Stephen, connected a quarter-over-quarter ground versus Q4, substance is down by astir 4%. Yes. So that's benignant of really we're seeing it connected again, Q4 versus Q1.

Operator

Our adjacent mobility comes from nan statement of Helane Becker of Cowen.

Helane Becker

Just 2 questions here. The first mobility is pinch respect to cargo. Can you conscionable talk a small spot astir what you're seeing correct now, are you seeing akin declines to what others are seeing successful nan market? How are you reasoning astir utilizing nan freight craft that you have?

Pedro Heilbron

Right. So nan first point I should opportunity is that cargo, it's only astir 3% of our revenues. So it's not that significant. I mean it utilized to beryllium 2.5%. So it's supra what it utilized to be, but not by a immense margin. But we are operating our 737-800 freighter. It's operating people pinch bully load factors and yields. It's really operating complete 10 hours per day, truthful we're getting nan astir retired of it. And yields person travel down a small bit. But successful our network, astir of our cargo still moves successful nan belly of our rider and narrow-body fleet and nan freighter is doing well. So we're not a large cargo carrier, and we should proceed seeing betterment successful our numbers, successful our cargo gross numbers.

Jose Montero

And it's contributing positively. I deliberation pinch those figures to nan business.

Helane Becker

Okay. That's really helpful. And past my follow-up mobility is, really are you reasoning astir nan convert? I deliberation you tin commencement buying it backmost successful April. So what are you reasoning astir pinch respect to that?

Jose Montero

Yes, Helane, I would not needfully get into specifications of particulars of nan strategy. But yes, location is simply a telephone action that is disposable successful April of this year. The person has -- nan owed day of nan person is really April 2025. But what we person been doing successful nan past respective months, arsenic we discussed, has been very progressive successful our buyback program, which besides gives america optionality for nan colony of nan person arsenic well. So it is benignant of nan strategy that we pursued. And we person different options disposable to america connected nan array to beryllium capable to minimize nan effective liability for us.

Operator

Our past mobility comes from nan statement of Josh Milberg of Morgan Stanley.

Joshua Milberg

Congrats connected nan results. I conscionable wanted to inquire if you could touch connected your CASM ex outlook. And what factors could yet alteration you to hit nan $0.06 level. And what I person successful mind is yet greater spot densification. And I cognize that successful nan past, you've said you wouldn't beryllium complacent astir that level. And I besides wanted to understand what's incorporated successful your CASM ex guidance connected -- successful position of aviator unit net adjustments. I joined nan telephone a small spot late, truthful I'm sorry if you already addressed that.

Jose Montero

Yes, Josh, convey you for nan question. The -- I'll reply nan past information first. And yes, successful our 2023 guidance of $0.06, location we person included each nan effect associated pinch each our salaried discarded and benefits contracts, et cetera. And truthful it's each successful there. In position of nan guideline for 2023, it does see an summation successful attraction costs associated pinch motor shop visits and lease motor rentals that we have. And truthful that's fundamentally nan driver that is offsetting immoderate of nan improvements that we person owed to nan capacity effect and owed to nan distribution benefits that we've achieved successful nan past 4th pinch our caller distribution strategy. So that's benignant of why nan CASM is remaining level for 2023.

But arsenic you will mention, we person still optionality related to nan fleet densification program. We expect to reason this information of our fleet densification programme during nan mediate portion of nan year, but there's different information that is coming successful consequent years and there's further opportunities successful distribution and successful others.

The different constituent besides we're seeing increasing a small spot successful position of portion costs this twelvemonth that we're offsetting pinch immoderate of nan improvements that we are making is overflight fees are going up successful a mates of countries successful Colombia and Brazil this twelvemonth that is driving immoderate costs pressures upward.

But again, we've been capable to mitigate that pinch immoderate of nan different improvements that we've made successful our -- conscionable successful nan business. So again, to summarize, we're keeping a CASM anticipation for this year, level versus 2022, again, driven by immoderate incremental attraction expenses, [drive offs] and -- aliases formation fees and offset by immoderate of nan improvements that we made successful distribution and nan capacity effect that we have. And pending, of course, densification going forward.

Joshua Milberg

Okay. That's great, Jose. And past if you could conscionable touch very quickly connected what you're seeing successful position of firm versus leisure trends successful nan first 4th and successful nan first half. I cognize you guys ever get that question.

Jose Montero

Yes, it's still not afloat recovered. I would say, correct now, leisure VFR is astir 3/4 of nan full measurement of passengers that we're serving and astir 1/4 is related to business. So it is still not backmost to nan benignant of 2/3, 1/3 wherever it was pre-pandemic.

Operator

At this time, I'd for illustration to move nan telephone backmost complete to Pedro Heilbron for closing remarks. Sir?

Pedro Heilbron

Yes. Okay. Thank you, and convey you all. This concludes our net call. Thank you for being pinch us. Thanks for your continued support, and person a awesome day. Have a awesome weekend, and we'll spot you adjacent time. Thank you very much.

Operator

Ladies and gentlemen, convey you for your participation. That concludes nan presentation. You whitethorn disconnect and person a awesome day.